Market Review: August 13, 2019

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Closing Recap

Tuesday, August 13, 2019

Index

Up/Down

%

Last

DJ Industrials

307.84

1.19%

26,215

S&P 500

39.12

1.36%

2,922

Nasdaq

152.95

1.95%

8,016

Russell 2000

16.31

1.09%

1,510


 

Equity Market Recap

·     U.S. stocks finished with strong returns after President Trump backtracked on some additional 10% tariffs for Chinese goods, delaying them until December 15th (from September 1st) to avoid hurting the Christmas selling season, with the delays announced for cell phones, lap tops, footwear, toys and some retail, among other items. The news, coupled with reports that more talks between China and US delegates will take place over the next few weeks by phone was enough to send beaten up stocks surging, though Treasury prices remained strong as yields were once again volatile. The stock market gains all came in the first 30-minutes of trading and was able to hold the remainder of the day, only pulling back slightly on headlines that Hong Kong police entered the airport with riot gear amid more protesters. Also weighing on sentiment, President Trump said in a tweet “our Intelligence has informed us that the Chinese Government is moving troops to the Border with Hong Kong. Everyone should be calm and safe!” This was a reminder that despite the tariff news, escalating tension between Hong Kong residents and China could further complicate matters. Gold prices ended lower, erasing earlier gains and falling from 6-year highs on hotter CPI inflation data, a bounce in the dollar. Fears of a potential crackdown by China on protests in Hong Kong has stoked demand for haven assets, including gold, early Tuesday, but subsided for the moment. Also of note today, the 2 and 10-year Treasury yield spread narrowed to as close as 2 bps before widening on the market bounce, raising recession fears (the spread was last negative in early June 2007).

Economic Data

·     Consumer Price Index (CPI) MoM for July reported in-line at 0.3% while core CPI (ex: Food & Energy) MoM for July little hotter at 0.3% vs. est. 0.2%. Consumer Price Index (CPI) YoY for July rises 1.8% vs. the est. 1.7% and core prices YoY at 2.2% vs. est. 2.1% – recap of data

·     US mortgage debt hits record, eclipsing 2008 peak as mortgage balances rise $162 billion to $9.406 trillion in Q2; also, student loan debt drops $8 billion to $1.48 trillion in Q2

 

Commodities

·     Oil prices spiked given the announcement of delayed tariffs on some Chinese good, with WTI rising $2.17 or 4% to settle at $57.10, bouncing ahead of the weekly API inventory data tonight (and EIA tomorrow morning). Natural gas prices edged 2% higher to $2.15 mln btu. Brent prices surged back above the $60 level, rising 4.66% to settle at $61.30 per barrel. Gold prices dropped from 6-year highs, falling -$3.10 or 0.2% to settle at $1,514.40 an ounce after rising as high as $1,546.10 an ounce. Gold prices were higher initially, benefiting from unrest in Hong Kong, a rout in the Argentine peso and slowing global growth fears, but the latest delay in tariffs and the hotter CPI inflation pushed gold prices sharply lower.

 

Currencies

·     In currency markets, the dollar was flat initially, but got a big boost vs. major currencies following the trade talk news, coupled with a weaker euro after another sour data point in Germany. Safe-haven currency’s slide as investors rotate into riskier assets/Argentina’s peso tumbled for a second day, as investors remain jittery about the country’s political future. The lone piece of economic data was also favorable for the dollar, as CPI came in slightly “hotter” than expected, which slightly reduced expectations of the Fed getting more aggressive in its rate cuts. The dollar rose over 130 bps vs. the Japanese yen to around 106.65 while the euro slipped.

 

Bond Market

·     Treasury volatility continued with the yield on the benchmark 10-year falling as lows as 1.615% (just above last week’s lows of 1.6%) on macro global concerns (Hong Kong protests, Argentina debt/political uncertainty, Italy politics, China trade tensions, etc.) before rebounding as high as 1.715% after the stock market spike on upbeat tariff delay news against China. But yields pared those gains, with the 10-year ending under 1.7%. The news that was making headlines today was the 2/10-yr spread narrowed to 2.2 bps earlier, the tightest since 2007. While avoiding inversion today, it remains a market concern as it generally indicates recession fears. The 2-year yield touched lows of 1.557% before recovering to highs around 1.66%. The 30-year yield briefly dropped below the 2.10% level before bouncing.

 

 

Macro

Up/Down

Last

WTI Crude

2.17

57.10

Brent

2.73

61.30

Gold

-3.10

1,514.10

EUR/USD

-0.0038

1.1177

JPY/USD

1.35

106.65

10-Year Note

0.037

1.681%

 

 

Sector News Breakdown

Consumer

·     Retailers; Footwear and apparel stocks in particular were on watch after the U.S. Trade Representative includes "certain items of footwear and clothing" on the list of imported Chinese products that will see tariffs delayed until December 15 (NKE, DECK, UAA, CPRI, RL, TIF, TPR, FOSL, FLR, GPS, M, JWN, KSS, BBY all among top gainers); auto parts retailer AAP disappoints after Q2 EPS and revs fell short of consensus estimates and cuts the upper end of FY outlook with 2019 net sales of $9.65B-$9.75B down from prior view $9.65B-$9.80B and comparable store sales between 8%-8.2% from 8%-8.4% (shares of AZO, ORLY also active on reports which showed flat comps vs. est. up 1.6% for Q2

·     Restaurants; YUM announced that David Gibbs, President and COO, will be promoted to CEO on January 1, 2020 to succeed Greg Creed, who intends to retire and take an advisory role; EAT Q2 EPS of $1.36 beat by 2c on mostly in-line sales of $834.1M while system-wide comparable sales of +1.2% missed the +1.8% consensus/comp sales were up 1.5% at company-owned Chili’s restaurants and fell 0.2% at Maggiano’s restaurants/sees year EPS $4.15-$4.35 vs. est. $4.01; DPZ said stores across the nation will soon have the option to use custom e-bikes for pizza delivery through a partnership with e-bike brand Rad Power Bikes; DRI’s Olive Garden’s Never-Ending Pasta Pass is back for a sixth year, and this time they’ve got an upgrade available: a $500 Lifetime Pasta Pass that will be available to 50 fans; DAVE jumps on better Q2 earnings/sales

·     Casino & Leisure movers; RCL was downgraded to hold at Argus saying with capacity growth accelerating over the next several years and spending on cruises showing signs of slowing, we expect the shares to trade within a narrow range over the next 12 months

 

Energy

·     Energy stocks; Crude oil surges after the U.S. said it was delaying China tariffs on several items while outright removing some items from a list of proposed new tariffs – lifted shares of stocks ahead of weekly inventory data tonight (API); XOM filed for seven-part, notes offering/size not disclosed; separately, Reuters reported XOM has held talks with a number of operators in the U.K. North Sea in recent weeks to gauge interest in selling some or all of its assets in the region, which could fetch up to $2B; in MLPs, WES was cut at both JPMorgan and Ladenburg given uncertainties following OXY’s recent acquisition of Anadarko, which owned ~55% of WES’ common units

·     Utilities & Solar; PEGI confirmed prior reports on Monday that it has drawn interest from third parties and is responding to such inquiries as appropriate, but says no agreement has been reached with any such third parties; BE shares plunged post earnings and after JPMorgan noted that some US state and local authorities are considering moratoria on gas distribution pipeline deployments, in aggressive pursuit of de-carbonization and 100% renewable goals and says Bloom could be the proverbial canary in a coal mine

 

Financials

·     Asset managers; AB preliminary assets under management increased to $585B during July 2019 from $581B at the end of June, as the 0.7% increase was due to market appreciation, as well as total firm wide net inflows; IVZ preliminary month-end assets under management (AUM) of $1,198.7B, an increase of less than 0.1% driven by favorable market returns, higher money market AUM, non-management fee earning AUM inflows, and reinvested distributions, partially offset by foreign exchange and net long-term outflows MN preliminary assets under management of $21.0B at July 31, 2019 fell from $21.3B at June 30, 2019

·     Insurance; GNW shares rise after Brookfield Business Partners (BBU) agrees to buy GNW’s majority stake in Genworth MI Canada, the largest private sector residential mortgage insurer in Canada, in a transaction valued at C$2.4B (US$1.8B).

 

Healthcare

·     Pharma movers; animal health products maker ELAN posted Q2 EPS of 28c topping estimates and revs of $781.6M vs. est. $782.9M, while tightened its range for FY adj EPS and revenue forecast due to headwinds from African swine fever and supply disruption of certain cattle products; OPTN rises after posting better-than-expected results after the close yesterday

·     Biotech movers; DCPH shares more than double after saying a phase 3 trial of its treatment (ripretinib) of gastrointestinal stromal tumors (GIST) achieved its primary endpoint of preventing cancer from progressing in patients with a form of stomach cancer, paving the way for the company to submit a NDA to the U.S. FDA; CHRS was initiated with a buy and $45 tgt at Mizuho saying the company’s lead drug, Udenyca, alone is worth $30/share; CLVS was downgraded to underperform at Bank America and cut its tgt to $7 after results last week

·     Healthcare services and providers; CVET shares dropped after Q2 miss with net loss of ($10M) as GAAP EPS loss (9c) on flat YoY revs of $1.01B and sees FY19 pro forma organic net sales growth of low single-digits; AAC delays its 10Q filing citing talks with lenders and potential investors; sees filing within extension period (also downgraded at Raymond James today)

 

Industrials & Materials

·     Industrial & Machinery; EMR was downgraded to hold at Argus saying near-term trends are more problematic as top-line growth is slowing and margins are facing pressure from acquisition integration and tariffs; CAT July North American 3-month machine sales rose 9%, July APAC 3-month machine sales fell -6% and Latin American 3-month rolling machine sales rose 20%; GE shares outperformed after filings showed that CEO Culp bought $3M in stock

·     Transports; another sector moving higher after falling on slowing global growth concerns, though not much specific news in the transports; LUV was downgraded to hold at Argus given the company’s rising costs and prospects for slower earnings growth

·     Metals & Materials; shares of gold miners (NEM, AEM, GOLD, HMY, AUY) jumped early after gold hit a more than six-year high amid unrest in Hong Kong and a rout in the Argentine peso drove investors already spooked by the U.S.-China trade war into havens such as bullion; gold miners revered after a higher inflation reading (CPI) capped expectations of more aggressive rate cuts by the FOMC and after the delayed tariff news by the U.S. on some China goods; GOLD was upgraded to buy at Argus based on our expectations for higher gold prices in the coming quarters and management’s upwardly revised production guidance

 

Technology, Media & Telecom

·     Internet; general strength in high betas names, led by Internet names with market “risk-on” attitude today; JD shares rose after posts Q2 revenue that beats estimates, boosted by stronger sales in its online retail business, while sales from its product segment, which includes online retail sales, rose about 21% and guidance above views

·     Semiconductors; the Philadelphia Semiconductor Index (SOX) rose over 3% early while AAPL gained as much as 5% earlier after the U.S. delayed the 10% tariff on some Chinese goods (including cell phones, laptops, and game consoles) until December 15. Earlier today, China said it would continue trade talks with the U.S. within the next two weeks. Last month, Apple filed for tariff exclusions for parts related to its Mac Pro line.

·     Media & Telecom movers; after months of speculation and talks, CBS and VIAB finally agreed to merge in a long awaited stock deal (each Viacom Class A voting share and Viacom Class B non-voting share will convert into 0.59625 of a Class A voting share and Class B non-voting share of CBS, respectively); AVYA shares jumped as beats Q3 revenue estimates and guides next quarter above ($735M-$755M vs. est. $716M) saying it was awarded two US government opportunities in Aug, including one with Social Security Administration valued at up to $400M but guides year revs below views at $2.9B-$2.92B vs. est. $2.94B; WIFI positive mention at Jefferies saying shares are significantly undervalued at current levels; NXST added to best ideas at Stephens earlier (replaces CBS) as believe recent weakness in the broadcast affiliate group and an imminent close on the proposed acq of TRCO provides NXST investors with an attractive entry; WWE best idea for remainder of 2019 at Guggenheim today with $100 tgt

·     Hardware & Component news; in optical, IIVI shares fell initially after Q4 beats but guidance was short of views, while company will have to refile for FNSR acquisition approval in China/downside Q1 guidance showed revs of $320-345M (vs. est. $348.16M); ADTN delays its 10-Q filing due to the ongoing assessment of material weaknesses related to inventory valuation/existence.

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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